ANALYSIS OF APTEL ORDER ON REC PRICING AND MULTIPLIER

Order in the case of REC pricing and vintage multiplier has now been uploaded on the ApTel’s website. Following is a quick summary of the same:

ApTel has rejected all prayers of the RE generators. Specifically, it has held:

– Pricing: ApTel found no issues with the change in methodology by CERC when they used bid-discovered prices as against CERC determined generic tariffs.

The order states: “

“In view of the growing competition and induction of latest technologies, more and more generators are participating in the auctions/bids with considerable reduced cost of generation. Thus, the Central Commission in specifying REC prices, has shifted to bid discovered prices in place of earlier generic tariff fixed by it when the RE sector specially solar was in infancy stage.”

And

“We have carefully considered the contentions of all the parties and note that under the prevailing market scenario, the prices of RECs cannot be kept artificially high to burden the end consumers. Further, if the prices of RECs are kept high without aligning them with the market reality and current cost of electricity, the obligated entities may not purchase the RECs and try to fulfil their RPOs by other means.”

– Vintage Multiplier – The ApTel has said that providing vintage multiplier is the “discretion” of CERC, and said that the CERC has provided “cogent reasoning” in its order, and further that the ApTel found “nounjustness in specifying the floor and forbearance prices of REC and discontinuation of the Vintage Multiplier”

– In our opinion, the justification of price reduction is also to some extent based on factually incorrect premise. For example, the order says:

“It is also noteworthy that sufficient time has been given to RE generators to sell their RECs at the power exchange but perhaps in anticipation of selling them at better prices has resulted into unsold REC inventory.”

And further,

“Another important fact is that among the three routes available for RE generators, the REC capacity is dominated by RE generators operating under CGP and OA route rendering APPC route as the last choice”

We believe that this order will have a significant adverse impact on projects and investors that have invested in REC projects. An immediate impact will be that such project will have to bear heavy losses on the existing inventory of RECs – the losses will be particularly heavy for solar projects.

It also does not bode well for future investment in the REC mechanism, as falling RE prices are an irreversible trend. Does this mean that REC projects will have to bear losses of such reduction every year?